8/24/2009 @ 6:00AM

Unemployment Takes Lasting Toll

Mass unemployment has returned on a scale and with a ferocity that has caught most Western governments by surprise. A frequent concern is the psychological and mental health consequences of long-term unemployment. It is often assumed that unemployment does not just exact a material toll on those affected but inflicts psychological damage, permanently disabling the unemployed person’s capacity to work.

Economics of happiness. Concerns about the psychological damage of long-term unemployment have been prompted in part by the development of “happiness economics,” whose theorists’ main contention is that increased wealth does not equate with greater happiness. There have been increasing numbers of European and U.S. surveys about quality of life, collating a range of demographic profiles about respondents to determine the predictors of contentment. One study of 100,000 individuals in 12 countries found strong consistent patterns across countries:

* It found reported happiness to be highest among the highly educated, women, high-income earners, the young and old (not the middle-aged), married, self-employed and retired.

* Among the least happy, common factors were unemployment, divorce and any sort of severe ill health.

These findings have encouraged an interest in the non-material sources of happiness, and it is clear that being educated and in employment correlate highly with states of bliss, whereas poor education and lack of work induce, or at least sit with, less robust mental well-being.

Depression factor. This last issue has become a much more significant aspect of public policy in the last few years, associated in particular with economist Richard Layard, who argues in his 2006 study, “The Depression Report,” that the effect of mental illness on happiness is underestimated and that mental illness is related to labor market experience. The focus of this argument was on untreated mental illness and its association with unhappiness. In calling for extensive reforms of the U.K. National Health Service to provide low-cost evidence-based psychological therapy to those so afflicted (a policy now in force), Layard stressed the economic cost of such patterns.

Untreated mental illness has several costs:

* The number of such victims receiving incapacity benefits in place of normal unemployment benefits is high.

* The loss of economic output is significant.

* By not working, unemployed people are missing out on a key aid to recovery from mental illness.

* As such, unemployment correlates with mental illness in some cases, and being unemployed reduces the chances of recovery. In effect, a vicious cycle exists. Empirical studies in the 1980s of the unemployed certainly reported psychological deterioration compared with groups of workers who maintained continuous employment.

Prospects? Accepting the perverse effects of prolonged unemployment on all groups, governments will try to identify effective counter-measures, which deal both with idleness and mental deterioration:

* Public works projects help certain key groups of unemployed people find work-centered activity; this tradition stretches back to U.S. New Deal public-works projects and became personified in Keynesianism.

* Counseling and guidance for the unemployed is crucial to maintain their contact with labor market options.

* Creating opportunities to participate in job creation schemes is crucial to helping the young unemployed acquire labor market experience and habits.

* Recognizing the diversity of unemployment as an experience that affects individual workers differently may therefore require distinct responses.

Outlook. Mass unemployment may endure for at least another 18-24 months and possibly longer in advanced capitalist economies, probably enduring beyond recovery in economic growth, and this endurance requires focused policy attention on the unemployed mind and its needs.

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